iFast Corporation - UOB Kay Hian 2020-10-13: Riding On The Wave Of Digitalisation & Fintech; Initiate Coverage With BUY


iFast Corporation - Riding On The Wave Of Digitalisation & Fintech; Initiate Coverage With BUY

  • Against the backdrop of a rapidly growing wealth management fintech industry in Asia, iFAST has carved out a niche to expand its assets under administration and revenue streams.
  • Initiate coverage on iFAST at BUY.

iFAST - Company Background

  • iFAST Corporation (SGX:AIY) is a leading wealth management fintech platform, with AUA of approximately S$11.15b as at 30 Jun 20.
  • Incorporated in the year 2000 in Singapore, iFAST provides a comprehensive range of investment products and services to financial advisory firms, financial institutions, banks, multinational companies, as well as retail and high net worth investors in Asia.
  • iFAST offers access to more than 11,000 investment products including unit trusts, bonds and Singapore Government Securities, stocks and exchange traded funds, and insurance products. It also offers services including online discretionary portfolio management services, research and investment seminars, IT solutions, and investment administration and transaction services.
  • iFAST is present in Singapore, Hong Kong, Malaysia, China and India. The company has more than 420,000 B2B adviser-assisted and business-to-consumer (B2C) customer accounts as of 2019, as well as over 400 clients (financial advisory firms, institutions, banks and Internet companies) under its B2B services arm.
  • See PDF report attached below for iFAST's Corporate Milestones and Key Management Team.

iFAST’s B2C Business

  • B2C caters to investors who prefer to do their own investments online (DIY investors). iFAST offers the FSMOne.com multi-products transactional platform in Singapore, Hong Kong and Malaysia. It encompasses a wide range of investment products, supported by a user-friendly website and mobile application, research content and customer service support. Fundsupermart (FSM) offers a range of investment and insurance products to retail investors.

iFAST’s B2B Business

  • B2B caters to the requirements and business needs of financial advisory firms, financial institutions and banks advising retail and HNW clients. iFAST provides a suite of services to B2B partners, including a wide range of investment products, fee collection, operational support, IT solutions, and wrap account services. It provides tax-effective employee benefit solutions to companies that want to administer pension schemes for their employees via an Internet platform. It also provides investors with transparent adviser-assisted wealth management plans.

iFAST’s B2B2C Business

  • Business-to-business-to-consumer (B2B2C) - Launched in recent years, iFAST Fintech Solutions provides innovative and customisable fintech solutions to institutional clients and business partners to develop and improve their B2C fintech capabilities.

Shift Towards Higher B2C Sales Mix

  • The shift in sales mix towards higher B2C non-recurring sales is set to accelerate on the back of the increased retail investing activity as a result of the COVID-19 pandemic.

iFAST - Investment Highlights

Beneficiary of broader market trends.

  • A collaborative report by Morgan Stanley and Oliver Wyman dated Jun 20 shows that high net worth (HNW) AUM as a proportion of total assets in the Asia-Pacific (APAC) region continues to remain lowest globally at 1-5%1. Total AUM (including retail and institutional) in Asia’s wealth management industry remain below 20%. Separately, PwC projects a 10% CAGR for AUM through to 20252. This growth will likely continue into 2030 and beyond as more investors seek professional wealth management advisory and wealth management tools. More specifically, there are vast amounts of unmanaged wealth in the Chinese markets due to the stellar economic growth in the past decade which is likely to continue.
  • Although iFAST’s losses in China since its entry in 2014 have been widening, we believe this is a product of the company’s focus on capturing a larger customer base and will eventually result in scalability in the future.
  • Additionally, financial literacy is a growing trend among young adults and teenagers. With the advent of easy online brokerages, iFAST is likely to capture a lion’s share of this demand. This is due to the wide array of investment products and tools available for retail investors, sustaining growth in the medium-to-long term.

Captive customer base provides support for recurrent sales.

  • iFAST’s B2B clientele comprises large financial institutions such as Financial Alliance, Great Eastern, Manulife, Bank of China and CIMB, among others. It provides a full suite of services such as back-end processes for financial institutions and tax-effective employee solutions to multinational corporations. iFAST also maintains a captive customer base that relies on its services.
  • Additionally, these large clients are more resilient to market downturns and ensure that > 80% of revenue for iFAST is considerably recurring. The company has gone through the bear markets and SARS in 2001-03, as well as the global financial crisis in 2008. We believe that these experiences also stand testament to management’s ability to navigate tough conditions and emerge stronger.

Strong corporate governance and management quality.

  • iFAST is among the 95 SGX-listed companies recently included in the 2019 SGX Fast Track list, which will be given prioritised response on selected corporate action submissions. While the benefits are not entirely tangible, the stringent admission criteria to the list are a strong testament to the high corporate governance standards and good compliance track record of the company.

Strong dividend growth may present upside surprise.

  • We believe iFAST’s earnings growth is beginning to accelerate, supporting a sustainable rise in dividends. Historically, iFAST has kept dividend growth steady, pegged to 76-88% of 2017-19 net profit. See iFast Dividend History.
  • Based on our estimates, we expect DPS of S$0.059 and S$0.064 for 2020-21, representing 76% and 75% of earnings, respectively. This is 26% and 21% higher than Bloomberg consensus estimates of S$0.047 and S$0.053 for 2020-21 respectively.

Multiple possible catalysts ahead.

  • iFAST is currently engaged in bids for initiatives that would expand its revenue stream. In Hong Kong, iFAST is among minorities in a consortium led by PCCW, which is up against another group led by Ping An Insurance’s OneConnect Financial Technology, in a bid to digitalise the country’s retirement fund system. The deal is expected to generate S$6.54b in revenue for the winning consortium, of which the net profit is estimated to be in the range of 2-2.5% (S$130.8m-S$163.5m).
  • In Singapore, iFAST is among nine applicants short-listed for the three digital banking licences that MAS seeks to issue. We expect operating expenses to grow by 9-11% if iFAST secures the licence. But we believe operations will be accretive to shareholders within three years of commencement.

See PDF report attached below for analysis on iFAST's earning outlook.

iFAST - Valuation & Recommendation

  • iFAST has been able to deliver consistent top-and bottom-line growth, and is set to expand current operations in Singapore, Hong Kong and Malaysia. China remains a strong potential upside for iFAST to continue double-digit growth in AUA in the future. The management’s ability to source for deals and potential revenue streams boosts our confidence in iFAST’s ability to grow exponentially. See PDF report attached below for iFAST's financial details.
  • On the back of higher operating cash flow, an estimated DPS of S$0.059/S$0.064 is expected for 2020/21F respectively. It is also expected to grow through to 2024. At the current price, this translates to an indicative yield of 2.0/2.2%.
  • iFAST currently trades at 33.9x 2021F PE.
  • See iFast Share Price; iFast Target Price; iFast Analyst Reports; iFast Dividend History; iFast Announcements; iFast Latest News.
  • See PDF report attached below for complete analysis on iFAST.

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-10-13
SGX Stock Analyst Report BUY INITIATE BUY 3.34 SAME 3.34